Sustained Recovery in Spanish Property Market looking more likely

Lately, the Spanish real estate market has been showing signs of recovery.

There are multiple factors at work in the Spanish property market which give an indication of an ease in the crisis that has hit Europe so badly in the recent years. The economy in Europe is finally recovering and people have much greater confidence in the markets which means that people are once again looking to invest money in the country.

There is also a belief among investors that property prices have reached rock bottom and are not likely to go down any further. Readily available financing is also helping buyers to invest in property once again.

Andalucia, which includes the Costa del Sol and Cadiz regions saw the most property transactions in Spain for the 3rd Quarter period for 2014 indicating that its the strongest market for property in Spain.

The market indicators tracking the property market in Spain report estimate that sales have increased by 8.8% in some places in the summer months in 2014. This 8.8% increase in 2014 is compared to the sales that occurred in the previous year.

Another statistic that points to the recovery of property market is the increase in lending in June 2014. It increased by approximately 19% compared to the month of June 2013. In addition to the handsome increase in lending activity, property prices also nudged up, albeit by just 1%, on a quarterly basis. This is the first quarterly rise in the real estate prices for the past six years.

However, some experts are of the opinion that it is not the time to celebrate just yet. Data on property prices and sales in the next 2 to 3 quarters will give a confirmed indication of whether this is an actual and sustainable recovery or just a rebound that has happened before.

Though skeptics are advocating caution, the fact is that things are a lot different this time compared to 2007. In 2007, most of the buyers were speculating on property. They did not buy property to live in or rent, but invested to reap a profit of up to 20% in a few years. However, that story turned out to be “too” good to be true and investors lost quite a bit of money. This time around however, investors are putting money in as long-term investments. They are also utilising the rental property market for profits.

In terms of ROI (Return on Investment), any investment that returns over 5% is noteworthy and returns in the range of 8 to 9% are deemed to be real moneymakers. Spain has delivered excellent return on investment in past years but taxation is taking its toll on the market.

They are many other differences between the price rise between 2007 and 2014.

Research conducted by leading analytic firms show that before the economic crisis hit in 2008, close to 40% of all the mortgages in Spain were taken by foreigners for investing in the domestic property market. Currently, foreigners account for just 3% of outstanding mortgages. Such a large decrease shows that this time around, people are buying property for actual use or for renting instead of looking at capital gains.

Earlier, the share of buyers less than 25 years of age stood at 16% whereas now this age category of buyers accounts for just 3% of the market.

Foreign investment in the Spanish property market is also increasing at a steady pace and between 2009 and 2013 there has been a huge increase in overall sales to foreigners most notably a steady increase during 2014.

House prices in Spain have also fallen considerably. The price decrease varies from region to region but on an average, prices have fallen by close to 58% between the year 2007 and 2014. Overall, prices have fallen by anywhere from 30% to 70% from 2007 to 2014.

The falling property prices have also resulted in many other changes. It has succeeded in creating a culture of negotiation. Earlier, sellers did not usually negotiate on price, as it was a seller’s market and there were plenty of buyers looking to invest in one of the hottest property markets in Europe.

However, after the crash in the housing market, there has been a sea change in the seller’s attitudes. In other words, it is a buyer’s market now, as sellers are under pressure to sell their property due to unemployment, associated property costs and mortgage obligations.

It is estimated that only seven in ten homes listed for sale are actually sold and that too at a good discount. This makes Spain one of the best real estate markets for investors as well as for people looking to buy their own house.

Another big change in the Spanish property market has been the change in the profile of the seller. Now, financial institutions are the biggest real estate sellers in the Spanish market as they hold a lot of the foreclosed property. Financial institutions are closely followed by private homeowners who are selling their old property. New developments are third placed in terms of numbers of units on offer for sale.

Falling property prices have made it a buyer’s market. Nowadays, buyers are able to afford more number of bedrooms as compared to the previous years. Earlier, it was difficult for an average buyer to afford more than a two bedroom property. However, now that same buyer can easily afford to buy a three-bedroom property at the price of a two bedroom property.

Many experts are of the opinion that Spain currently offers the most value in terms of return on investment in property, as far as Europe is concerned. There are very few other markets in Europe that are capable of offering higher ROI.

Bernard Vent, who is the managing director of Winkworth Spain, also shares this opinion.

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